In 2023, U.S. bankruptcy filings experienced an 18% surge due to higher interest rates, stricter lending standards, and the continuing tapering of pandemic-era supports. This indicates a likely increase in insolvency cases in 2024, even though the numbers remain below pre-COVID-19 levels.
What Happened: Reuters reported on Wednesday that according to data from the Epiq AACER bankruptcy data provider, the total bankruptcy filings, covering commercial and personal insolvencies, rose to 445,186 in 2023 from 378,390 in 2022. Chapter 11 business reorganization filings in the commercial sector increased by 72% to 6,569. Consumer filings also rose by 18% to 419,55.
The year ended with a slight decrease in total filings, from 37,860 in November to 34,447 in December. Despite this, the numbers were 16% higher than the previous year.
Why It Matters: The Vice President of Epiq AACER, Michael Hunter, anticipated the rise in new filings in 2023, especially among commercial filers. He foresees this trend continuing in 2024 due to various economic factors, such as the tapering of pandemic stimulus, increasing cost of funds, higher interest rates, and rising delinquency rates.
Household debt reached a record $17.3 trillion at the end of the third quarter, a figure that, combined with escalating delinquency rates, highlights the increasing financial strain on businesses and households over the past two years.
Despite this, financial conditions began to ease in the fourth quarter of 2023 after the Federal Reserve signaled the end of its rate-hike cycle. The Fed’s indication of prospective rate cuts this year could further impact borrowing costs and overall financial conditions.
The rise in bankruptcy filings in 2023 was attributed to the end of COVID-19 relief measures and high-interest rates, as well as the stress on the economy due to these factors. The situation was exacerbated by inflation and tightening financial conditions.
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